3 min read
Calculate your current debtor days
Before you can improve debtor days — also called Days Sales Outstanding (DSO) — you need an accurate baseline. Divide your trade debtors balance by your total revenue, then multiply by the number of days in the period. If your debtors stand at £180,000 and annual revenue is £1.2m, your DSO is 54.75 days.
Pull this figure from your management accounts monthly rather than annually. A single year-end snapshot can mask seasonal spikes. Compare your DSO against the payment terms on your standard contract — the gap between the two is your collection lag.
Tighten the invoicing process
Many collection problems originate at the point of invoicing. Send invoices on the day work is completed or goods dispatched, not at month end. Confirm the correct purchase order number, billing address and approver name before you invoice — a disputed PO can delay payment by weeks at larger clients.
Where clients operate a scheduled payment run, ask which day it falls on and time your invoice to arrive before that cut-off. Even two to three days of timing improvement can shave five to seven DSO days at scale.
Implement a structured collections cadence
Ad hoc chasing is less effective than a written cadence. A reasonable structure: a payment reminder two days before the due date; a polite call or email on the due date if no payment has cleared; a firm follow-up at day 7; an escalation letter at day 14; a final notice with reference to your Late Payment of Commercial Debts (Interest) Act 1998 rights at day 28.
Assign collections ownership explicitly. If your finance team is also handling purchase ledger and payroll, debtor chasing will be deprioritised under pressure. Even a part-time credit-control resource can materially reduce DSO.
Use contractual levers and early-payment incentives
Review your standard terms. Net 30 is common but not universal — some sectors accept net 14 without pushback. If you are newly quoting a contract, the terms you propose become the baseline for negotiation.
Early-payment discounts (for example 1.5% for payment within 10 days) can appeal to clients with surplus cash, though you should model the cost against your own cost of capital or borrowing rate before offering them. Conversely, statutory late-payment interest — currently 8% above the Bank of England base rate for B2B debts — can be applied to overdue invoices and should be referenced in your final demand letters.
Consider financing solutions where the lag is structural
If a large client insists on 60-day or 90-day terms and the relationship is otherwise valuable, invoice finance or selective receivables financing can convert that outstanding balance into immediate cash. The facility effectively monetises the debtor book rather than waiting for payment.
This is not a substitute for good collections practice — but where the DSO problem is structural rather than a process failure, it is a legitimate working capital tool that leaves trading relationships intact.
Frequently asked questions
Does chasing early damage client relationships?
A professional, systematic cadence rarely damages relationships — most clients expect it. Problems arise when chasing is erratic or aggressive in tone. A reminder sent on the due date is standard commercial practice and signals that you run a well-managed business.
Can we charge interest on late invoices?
Yes. The Late Payment of Commercial Debts (Interest) Act 1998 entitles you to statutory interest (8% above Bank of England base rate) on B2B debts unpaid after the agreed term, plus fixed compensation of £40–£100 per invoice depending on value. You can also claim reasonable recovery costs.
Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.